Visa, Mastercard Reach $30B Settlement Over Swipe Fees

Visa and Mastercard reached an estimated $30 billion settlement this week to limit credit and debit card fees for merchants. The antitrust settlement, one of the largest in U.S. history, according to Reuters, is subject to final approval by the Eastern District Court of New York, which if approved, would resolve most claims in nationwide litigation that began in 2005.

Swipe fees are paid to Visa, Mastercard and other credit card companies in exchange for enabling transactions. Grocery retailers have lobbied for credit card swipe fee reform for decades to combat the inflated fees. 

“Due to a lack of competition, credit card companies have been able to exponentially increase hidden processing fees that grocers are forced to pay for accepting credit cards as payment,” noted Jennifer Hatcher, chief public policy officer and SVP, government relations at Arlington, Va.-based FMI - The Food Industry Association, last year. “Card-processing fees in the U.S. are some of the highest in the world, totaling $160.7 billion in 2022, according to Nilson Report. Excessively high credit swipe fees that exceed grocers’ profit margins force grocers to have to increase prices. These fee increases disproportionately impact lower-income Americans, those who rely on cash, and those who do not have access to high credit card rewards.”

Also last year, Greg Ferrara, president and CEO of the Washington, D.C.-based National Grocers Association, said: “These swipe fees have a direct impact on independent community grocers’ operations and the viability of their businesses. Reducing the costs of these fees would provide grocers with savings to pass on to their customers and create opportunities for reinvesting in their stores, expanding their workforce and boosting local economies.” 

This week's landmark settlement aims to lower credit interchange rates and cap those rates into 2030. It also provides updates to several key network rules giving merchants more choice in how they accept digital payments. 

Specifically, the agreement includes:

• Lower interchange rates. The settlement will reduce credit interchange rates for U.S. merchants, largely comprising small businesses.
• Interchange rates will not go up for five years. The agreement will cap the reduced credit interchange rates for five years, providing a level of cost certainty for merchants.
• New ways to manage costs. Visa said that the settlement gives merchants greater flexibility at the point of sale, including the opportunity to steer to preferred payment methods and more optionality in regard to surcharging. It also provides funding for new programs to educate small businesses about payment acceptance options and how to best manage costs.

“By negotiating directly with merchants, we have reached a settlement with meaningful concessions that address true pain points small businesses have identified,” said Kim Lawrence, president, North America for San-Francisco-based Visa. “Importantly, we are making these concessions while also maintaining the safety, security, innovation, protections, rewards and access to credit that are so important to millions of Americans and to our economy.”

Some critics believe the settlement may not go far enough, however, pointing out that the savings would be temporary and fees would remain high.

Washington, D.C.-based National Retail Federation released the following statement: “We are still reviewing the proposed settlement, but we have some very real concerns. The reduction of just a few basis points is within the range that swipe fees have fluctuated over the years and amounts to pennies on the dollar. The fact remains that these fees are an unfair business practice that harms merchants and consumers and benefits banks. This settlement in no way influences our commitment to move forward with passing the Credit Card Competition Act.”

“While this settlement is a step in the right direction and will provide a limited amount of short-term relief to small businesses, it does not solve the long-term anti-competitive rate-setting practices that are the root of this problem,” said Jeff Brabant, VP of federal government relations for Nashville, Tenn.-based National Federation of Independent Business. “As long as the credit card networks, Visa and Mastercard, get to set the interchange rates for every bank that issues a credit card, anti-competitive pricing will remain, and small businesses will continue to pay artificially high rates. Competition must be injected into the credit card marketplace to allow rates to be set by market forces, and that will only happen with the passage of the Credit Card Competition Act.”

In June 2023, Congress reintroduced the bipartisan Credit Card Competition Act, reform first drafted in 2022 that would require more than one network to be enabled on credit cards, giving food retailers choice in payment routing, and fostering competitive innovations in services such as fraud protection for merchants and consumers alike.